Pricing Pressures Constrain Options for ISVs for Customer Service Programs Designed to Support SaaS Offers

Designing a menu of low monthly subscription charges may make sense for Independent Software Vendors (ISVs) launching Software as a Service (SaaS) offers. But ISVs have to be very careful to include the cost of a satisfactory customer service operation in monthly charges if SaaS subscribers are to deliver the revenue ISVs require.

We see three reasons for ISVs to fail to understand this critically important point:

  1. An ISV brings to a SaaS offer a lot of experience with “freemium” Internet offers and thinks paying subscription customers will set the same expectations for the SaaS offer — in other words no customer service beyond forums, access to a support knowledgebase, etc
  2. Markets are highly competitive. Subscription customers expect very low monthly charges. An ISV decides customer service is expendable, but features are not.
  3. An ISV chooses to approach an SaaS market as roughly the same as an Infrastructure as a Service (IaaS) market. Highly technical customers do fine solving their own IaaS problems, why shouldn’t SaaS customers do the same?

Each of these reasons are incorrect. “Freemium” Internet offers are not the equivalent of paid SaaS offers. Paying customers require support. Poorly moderated customer forums are usually of little value to paid subscribers; therefore, forums can’t be trusted to provide the answers customers require. A voluminous knowledgebase without a robust search service is rather useless. So plan on offering some level of customer service. At a minimum, a commitment to reply by email to support requests within one business day makes sense.

If monthly subscription charges won’t cover the cost of a customer service program it makes sense to revise charges upward. The alternative is either too many low paying subscribers (and, thereby, a lot more requests for customer service), or too many dissatisfied customers. Either way you lose.

SaaS customers for Google Apps or Microsoft Office 365 are not the same group of highly technical people who sign up for IaaS. SaaS customers can include office workers who lack formal technical training, and do not want to get any. Failing to provide them with the level of customer service they expect is a mistake. The goal is to keep them subscribing. So take the steps required to keep them on the books as paying customers.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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